Blockchain stimulates the Internet of Materials

Bitcoin, Ethereum, Litecoin and other digital currencies have caused a financial frenzy. But they have also stimulated a very interesting discussion about their potential to change the very meaning of money, the business landscape and, finally, our world. I am very happy because this post starts a very important and potentially ground-breaking discussion. It addresses how using blockchain, the software behind the development of cryptocurrencies, we can develop the Internet of Materials that will maximize the value, utility, and sustainability of raw materials by reducing transaction friction and facilitating global trade.

Materials are the essential matter of things; a defining element of societies and cultures. The stone, iron, and bronze ages illustrate the importance and fundamental necessity of materials. Although our society is currently in the “information age,” materials remain an essential component in all aspects of life and development.

As consumers, we are natural stakeholders in material sustainability and should consider ourselves universally responsible for resources and their environmental stewardship. This idea also extends beyond pure social conscience. From an enterprise perspective, improved financial and risk management performance provide profit-based incentives for material sustainability within the supply chain. Furthermore, emphasis on sustainability acts as a catalyst for innovation and as a basis to engage and connect with consumers.

The following discussion of materials seeks to highlight the magnitude of the global materials industry and the gaps in material stewardship, e.g. landfilling materials with unrealized value and/or utility. In light of recent and ongoing discussions regarding relative material sustainability, the calculated/measured sustainability of one material of versus another, it is worth noting that we do not identify or advocate material preferences. We advocate for data and innovation. Relative material sustainability is a moving target; considerations such as water, energy and technology can have swift and significant impact on the relative sustainability of materials.

The global import/export value of materials is almost $3.5 trillion annually and total volume is in excess of two billion tons annually. For plastic alone, recent research estimates that 8.3 billion metric tons of plastic have ever been produced, with about 30% still in use and only 9% having been recycled. Plastics and metals represent the majority of value, and metal and paper represent the greatest tonnage with more than 1.6 billion tons and 400 million metric tons respectively.

To provide some additional perspective, most materials will spend some time on a truck somewhere in the supply chain, even if the primary transportation mode is air, marine, or railway. Using 40,000 pounds as a truckload, and a little more than 2.4 billion tons in annual materials, that would equal more than 122 million truckloads. If placed end to end, the trucks would circle the earth 1.75 times every year.

Globally, municipal solid waste (MSW) is estimated at more than 1.3 billion tons annually, with an estimated cost of more than $205 billion. An estimated two million people act as informal waste pickers contributing to international markets for recycling. Informal waste pickers are individuals or groups that collect recyclable or reusable materials, which are exchanged for deposit/market value. Collectively, they may have a significant impact on markets, but they are largely ignored in the context of policy and planning. The top twenty-five countries for MSW recyclers highlights how much room there is to improve recycling rates globally. Germany at the top of the list has a recycling rate of 66.1%, only the top ten exceed 50%, and the US rate, last on the list, is a disappointing 34.6%.

Overall, US MSW in 2014 was in excess of 250 million tons with more than half going to landfills. Paper, glass, metal and plastic, all of which are highly recyclable, accounted for 47.4% (14.3%, 5.2%, 9.4% and 18.5%, respectively) of the total weight landfilled.

Blockchain and its role

The orchestration of material markets both upstream and downstream, consisting of billions of tons of materials, delivered through multiple modes of transportation around the world, is complex enough. It is compounded when considering the various systems and software, often proprietary and expensive, that power the modern customer and supplier enterprises. Complexity not only drives costs, but can also do further damage by hindering innovation.

Research on informational friction in commodity markets by Sockin and Xiong, and joint pricing and inventory control models by Yao demonstrate that improved, trustworthy data improves operational efficiencies, reduces risk, and optimizes profit. Supply chain operating networks (SCONs) and supply chain on blockchain are evolutionary contributions that build on existing supply chain platforms and leverage the wealth of data generated by the modern enterprise. The primary benefit of these approaches is improved data. Typically, the SCON or blockchain is owned by the platform in which it is integrated. For the supply chain platform this provides a competitive advantage, and a fair value to their customers. However, this approach creates inherent market friction due to costs and technological barriers.

The overall cost and complexity of supply chain platforms, integrations, and the development and implementation of pricing and supply models, makes them prohibitive to all but the largest participants. This again, creates inherent friction for materials markets because the overall reach and power of this information and technology is limited to participants who can afford it. The result is a technology proliferation race at the expense of enterprise core competencies and material utility, value, and sustainability.

In other words, if software eats materials, we all lose – the customer and supplier enterprises, the consumer and the environment.

Using blockchain, the Internet of Materials maximizes the value, utility, and sustainability of raw materials by reducing transaction friction and facilitating global trade.

By aligning all stakeholders – consumers, enterprises and even materials themselves, we identify a path for global material sustainability. Through a combination of technologies, and a basis in free and open-source software we make the path accessible for everyone. The Internet of Materials (IoM) drives growth and efficiency, and supports material utility, value and sustainability. Not only is the IoM a self-sustaining mechanism for material sustainability, but also the necessary next frontier to realize the promise of Industry 4.0.

This emerging discussion is very interesting, and challenging for those still coming to terms with blockchain at a conceptual level.

My question is that you appear to state the case, but further explanation and details are needed to demonstrating explicitly how blockchain will reduce friction and preserve (create?) value through improved data transparency and more alignment along the value chain. I guess some illustrative examples may be the most effective way to make this point more tangible for more readers.

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